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Lockheed Martin Corporation Execs Spill the Beans on the F-35

Just how important is this plane to Lockheed's future -- and how is it doing so far?

When Lockheed Martin(NYSE:LMT) reported its fourth-quarter and full-year 2013 earnings this morning, it disappointed investors pretty badly. The fact that the stock sank 4% in response to the earnings news alone should tell you that. But quarterly earnings aren't everything.

Lockheed Martin expects to be building, maintaining, upgrading -- and getting paid for -- F-35 Lightning II fighter jets for the next 60 years -- or 240 "quarters." Viewed from that perspective, you could argue that a single quarter's results are downright insignificant to the big picture. So, let's try to color that picture in a bit, move past the numbers, and focus instead on what Lockheed Martin had to say about the airplane that promises to be perhaps its biggest revenue generator... ever: the F-35.

Already, Lockheed CEO Marillyn Hewson is able to boast that, thanks to Lockheed owning the F-35, "no one else has a fifth generation fighter and it's a unique capability" for Lockheed. CFO Bruce Tanner points out that because the F-35 is "through the developmental cycle," Lockheed doesn't have to spend as much on R&D to develop a new plane, while its rivals must: "Our portfolio is available now ... I think that's got us very uniquely positioned."

Lockheed Martin's F-35: Ready for takeoff. Source: Lockheed Martin.

The F-35 is a big part of Lockheed's businessLockheed Martin delivered 35 F-35s to its customers in 2013, five more than in 2012. So the program is still very definitely in the "low-rate, initial production" phase of its rollout. Yet already, Hewson pointed out in yesterday's conference call, "the F-35 [is] a very significant element of our portfolio. It ... represents 16% of our revenue in 2013 and it's going to continue to grow."

Tanner projects that this year, "the F-35 program [alone will be] as large or larger than any of our other four business areas."

But the F-35 is not very profitable... yetAs important as the F-35 is to Lockheed's future, though, investors still need to keep a close eye on the bottom line. Pointing to the 6% decline in aeronautics revenues in 2013, Tanner noted that operating profit margins held more or less steady at 11.4% -- not becausethe company is building more F-35's, though, but in spiteof it. In emphasizing Lockheed's "improved performance from multiple lines of business," Tanner noted that diversification was actually "helping to offset the dilutive effects of additional F-35 volume" (emphasis added).

Translation: So far, the more F-35s Lockheed builds for its customers, the less profit it's making. Over time, that could change, as production volumes go up, and production costs go down. For now, though, the F-35 sounds like a bit of a double-edged sword for Lockheed: Yes, It's a product everyone else would like to have, but Lockheed is able to sell. The trick now will be to earn more profits on the product.

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I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.